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How IBM’s $34 billion deal in buying Red Hat will boost its Cloud Business and what this means for IT service vendors like us?

As IBM is keener on hiring for skills and not just resumes, the aspect of quality has made them go on a merger and acquisition spree big time. We had recently discussed in our previous blogs that IBM is in anvil to acquire Red Hat and we see that IBM has closed its merger with Redhat and has brought the unit at a pegged cost of $34 billion asset value. It is seeing this merger as a much needed revamp to its cloud division as Ginni Rometty had opined that we are not here to fear for any cloud during IBM Developer Day 2019 Conference held at Taj Vivanta Yeswantpur and now we understand why the statement holds validated in present scenario. While IBM on Tuesday successfully closed its mega $34 billion acquisition of Software Company Red Hat it is looking to ramp up itself internally in its cloud computing business via this poaching. Underscoring the drive into high-margin businesses IBM in October agreed to buy Red Hat the company’s biggest acquisition pegged till data in its more than 100-year history which has left trade analysts shell shocked.

Ginni Rometty, IBM’s chief executive since 2012, has steered the company from a legacy based organization towards faster-growing segments such as cloud, software and services and away from traditional hardware products, but not without having a bumpy journey and one filled with a lot of resentment. The newer areas of focus have however underwhelmed investors as they are happy with IBM’s earnings. In a recent interview, Rometty said the deal was driven by what its customers wanted and it is all about helping companies "Move towards Mission-Critical Work" to the cloud, offering a variety of hybrid public and private clouds at ease. IBM has all the critical parts and our employees and value added partners can up the ante further to a global reach she said and that’s precisely where we come into foray.This move will create newer paradigms in Cloud no doubt but it also comes with a challenge of IT consulting, project feasibility and updates. This requires a knowledgeable IT partner who can assist IBM with their IT audits and cluster wing updates from an enterprise perspective and we are keen to provide them unhindered support on this initiative the best possible way if required.

Today’s customers want hybrid cloud applications because they specifically look at their IT and they say, 'Look I can't just throw it all out or rebuild it'" and instead want a mix of both public and private cloud applications with one platform intermeshed across for easy access and audit trials. Ginni Rometty also cited examples over how major IBM cloud customers like Morgan Stanley and Delta Air Lines have been able to achieve significant business outcomes by implementing their product verticals in their respective organizational verticals and looks forward to creating an aspirational adjunct firm which will be an essential part of IBM’s digital transformation for the future via Redhat. Pegged at $190 a share for Red Hat this deal represents a 63% premium and a lot is standing on IBM and Ginni Rometty and we wish her all the best both from an Enterprise Solution vendor and as a well wisher perspective. An interesting point about Red Hat which was founded in 1993 is that it specializes in Linux operating systems and is one of the most popular types of open-source software and an alternative to proprietary software made by Microsoft Corporation of which IBM had faced years of revenue declines as it had transitions from its legacy computer hardware business into new technology products and services.

Red Hat CEO Jim Whitehurst and his management team will remain in place. Whitehurst will join IBM’s senior management team and report to Rometty directly so it’s old wine in a new bottle which will be creating wonders in open source software predominantly. IBM proposes to have Red Hat’s headquarters in Raleigh, North Carolina, and its facilities, brands and practices common and has said it will operate as a distinct unit within IBM. Ginni Rometty said no job or cost cuts are planned at Red Hat and will offer "a next-generation hybrid multicloud platform" that will be based on open source technologies, such as Linux and Kubernetes to the Enterprise community soon. IBM’s Cloud strategy has focused on helping companies merge together multiple cloud platforms rather than compete head-on with Hyper scale cloud providers such as Amazon Web Services, a unit of Inc; Microsoft or even Alphabet Inc’s Google and via Red Hat will continue to build and expand its partnerships, including those with major cloud providers, such as Amazon Web Services, Microsoft Azure, Google Cloud and Alibaba which is a tactical move indeed by Ginni Rometty as she neither brushed shoulders with other top honchos nor lost the deal with Redhat. This was essential for IBM’s success in the cloud vertical and Red Hat is expected to contribute approximately two points of compound annual revenue growth over a five-year period and we bode them success for a great journey ahead.

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